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Technology Stocks : Nokia (NOK) -- Ignore unavailable to you. Want to Upgrade?

To: EJhonsa who wrote (7680)	10/18/2000 6:32:21 PM
From: Puck	Respond to of 34857

Thanks for the correction. If I understood TXN correctly, they were only talking about a couple weeks worth of orders canceled at the end of September, not a shut down for a month or two. The problem could be isolated to Motorola's anemic sales growth in handset coupled with its strategic withdrawl from the high volume low end of the market in Europe and elsewhere (this paring of production volume would most definitely impact TXN) and Ericsson's outsourcing of its low end production to Malaysia and expected shut downs of U.S. factories. I've observed in general that whenever production is being transferred from one facility to another in most any industry that inventory is stockpile by the company in question because it is needed in both places to ensure a continuous supple of production during the transition. This causes gross margins to be impacted in the near term. Once volume has been ramped in the new facility, the inventory build reverses and gross margins return to normalized levels. Usually the majority of the productivity dislocations correct after one quarter but their affects are usually still felt for a quarter or so more. Given the magnitude of Ericsson's outsourcing and manufacturing shift, I can well imagine that this would cause a temporarily severe drop in orders for TXN. Anticipation of the need to stockpile would have been recognized last winter as company executives were looking ahead to the new year and might have been implemented gradually during both 2Q and 3Q rather than all in 3Q.